98-17562. Subordination of Direct Loan Basic Security To Secure a Guaranteed Line of Credit; Correction

[Federal Register Volume 63, Number 127 (Thursday, July 2, 1998)]
[Rules and Regulations]
[Pages 36157-36158]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17562]


-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Rural Housing Service
Rural Business-Cooperative Service
Rural Utilities Service
Farm Service Agency

7 CFR Part 1980

RIN 0560-AE92


Subordination of Direct Loan Basic Security To Secure a 
Guaranteed Line of Credit; Correction

AGENCIES: Rural Housing Service, Rural Business-Cooperative Service, 
Rural Utilities Service, Farm Service Agency, USDA.

ACTION: Final rule; correction.

-----------------------------------------------------------------------

SUMMARY: This document corrects the amendatory language contained in 
the final rule published April 24, 1998, regarding approving a 
subordination of direct loan security when another lender will be 
making a line of credit guaranteed by the Agency with a Contract of 
Guarantee-Line of Credit. This correction clarifies that the conditions 
applicable to a subordination of direct loan basic security do not 
apply to the subordination of direct loan normal income security. This 
correction will apply retroactively to those lines of credit approved 
since the effective date of the final rule.

EFFECTIVE DATE: May 26, 1998.
FOR FURTHER INFORMATION CONTACT: Phillip Elder [phone]; 
Electronic mail: [e-mail].

SUPPLEMENTARY INFORMATION:

Background

    The final rule being corrected by this publication was intended to 
allow subordination of direct loan basic chattel and real estate 
security to secure a guaranteed line of credit in certain cases, to 
allow subordinations for refinancing purposes and to remove a loan 
maximum limitation that had been repealed.

Need for Correction

    As published, the final rule had the unintentional effect of 
greatly increasing the conditions that must be met for the Agencies to 
subordinate direct loan normal income security when making a guaranteed 
line of credit. These extra conditions were intended to apply only to 
subordinations of basic security when making a guaranteed line of 
credit. As stated in the final rule discussion of the fourth comment 
received, ``Regardless, the limitations included in Sec. 1980.108(a) 
will allow subordinations of direct loan basic security in only those 
cases where the likelihood of a Government loss on the direct loan is 
small.'' The extra conditions were not to be applied to subordinations 
of normal income security. The definitions of normal income and basic 
security are contained in Sec. 1962.4 of Title 7. Also, as part of this 
correction, the first extra condition in Sec. 1980.108(a)(1)(vi) is 
clarified to more clearly state that the required loan to value ratio 
is to be calculated based on all of the borrower's direct loans and all 
of the loan security and is not calculated on a single loan basis for 
multiple loan borrowers.

Correction of Publication

    In the final rule published in Federal Register, 63 FR 20295-20299, 
on April 24, 1998, make the following corrections in the amendatory 
language section: At

[[Page 36158]]

63 FR 20298, in the third column, Sec. 1980.108, introductory paragraph 
(a)(1)(vi) and the first sentence of paragraph (a)(1)(vi)(A), should be 
corrected to read as follows:


Sec. 1980.108  General provisions.

    (a) * * *
    (1) * * *
    (vi) The Agency may subordinate direct loan basic security under 
paragraph (a)(1)(v)(D) of this section only when both of the following 
additional conditions are met:
    (A) The total unpaid principal and interest balance of all of the 
borrower's direct loans secured by the property being subordinated is 
less than or equal to 75 percent of the value of all of the basic 
security for the direct loan, excluding the value of growing crops or 
planned production, on the date the Agency approves the subordination. 
* * *
    Signed at Washington, DC, on June 22, 1998.
August Schumacher Jr.,
Under Secretary for Farm and Foreign Agricultural Services.

    Dated: June 10, 1998.
Jill Long Thompson,


Under Secretary for Rural Development.

[FR Doc. 98-17562 Filed 7-1-98; 8:45 am]
BILLING CODE 3410-05-P